Autos Become the Center of Innovation

NEW YORK ( TheStreet) -- For the first time in over a century, automobiles are the center of innovation.

Early in the 1900s we had the Stanley Steamer and even electric cars on the road. Scale and consolidation led to today's standards of enclosed cabs with gasoline-powered engines, controlled with a wheel and pedals, made by a handful of global giants.

It's all about to change.

There are three avenues of change -- how the car is powered, how the car is controlled and what the car is made of. Both big and small carmakers have to navigate through this changing world.

Power

The most obvious change will be how cars are powered. What used to be a choice between gasoline (which is like alcohol) and diesel (which is more like cooking oil) is rapidly being transformed by the rise of the electric car and the vibrant hybrid market.

We now have four choices for electric-powered cars. Tesla ( TSLA) refuses to die, writes Jalopnik.com. The GM ( GM) Chevy Volt and Nissan Leaf, according to Cleantechnica.com , have moved Toyota ( TM) to introduce a plug-in Prius. Privately held Fisker has sold 1,500 electrics, making total demand 31,400 for 2012, according to Bloomberg.

Electrics have short ranges, and are best for city driving. As distances grow, hybrids become the choice. Toyota alone will sell 1.2 million hybrids this year, writes Business Week leading to more American competition according to Forbes , even from Ford ( F). The U.S. hybrids are usually bigger, substituting size and comfort for absolute mileage savings.

American hybrids are country cars. Asian hybrids are city cars. We're moving to a market of town cars and country cars.

Control

California became the second state to legalize driverless cars last month, writes the BBC (Nevada was the first), with Gov. Jerry Brown signing the bill at Google's ( GOOG) headquarters, next to a Toyota Prius retrofitted with the Google technology.

Computer-controlled cars combine radar, GPS, and video to create an interactive map of the car's surroundings that the computer then navigates through.

Retrofit is the key word here. The Alliance of Automobile Manufacturers objects to the bill, but that is tied to its being an after-market product. They don't want to take the insurance hit in case of accidents.

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